Community Development:

Federal Revitalization Programs Are Being Implemented, but Data on the Use of Tax Benefits Are Limited

GAO-04-306: Published: Mar 5, 2004. Publicly Released: Mar 5, 2004.

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Congress established the Empowerment Zone and Enterprise Community (EZ/EC) program in 1993 and the Renewal Community (RC) program in 2000 to provide assistance to the nation's distressed communities. To date, Congress has authorized three rounds of EZs, two rounds of ECs, and one round of RCs. The Community Renewal Tax Relief Act of 2000 mandated that GAO audit and report in 2004, 2007, and 2010 on the EZ/EC and RC programs and their effect on poverty, unemployment, and economic growth. This report describes (1) the features of the EZ/EC and RC programs, (2) the extent to which the programs have been implemented, and (3) the methods used and results found in evaluations of their effectiveness.

Both the EZ/EC and RC programs were designed to improve conditions in distressed American communities; however, the features of the programs have changed over time. Round I and II EZs and ECs received different combinations of grant funding and tax benefits, while Round III EZs and RCs received mainly tax benefits. To implement the programs, federal agencies have, among other things, designated participating communities and overseen the provision of program benefits. Since 1994, the Department of Housing and Urban Development (HUD) and the Department of Agriculture (USDA) have designated a total of 41 EZs and 115 ECs, and HUD has designated 40 RCs. Available data show that Round I and II EZs and ECs are continuing to access their grant funds and IRS data show that businesses are claiming some tax benefits. However, the Internal Revenue Service (IRS) does not collect data on other tax benefits and cannot always identify the communities in which they were used. Also, efforts by HUD to obtain these data by survey were limited to Round I designees, and EZ and RC officials have had difficulty obtaining such information directly from businesses. The lack of tax benefit data limits the ability of HUD and USDA to administer and evaluate the programs. The few evaluations that systematically collected and analyzed data on EZ/EC program effectiveness used a variety of research methods to study different aspects of the program. The most comprehensive of these studies--the HUD Interim Assessment--found that employment of Round I EZ residents had increased from 1995 to 2000, that larger businesses were more likely to use tax benefits than smaller businesses, and that resident participation in EZ or EC governance has been uneven, among other things.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: In response to GAO's recommendation, officials from HUD, USDA, and IRS met to identify data needed to assess the use of the tax benefits and identified three means of collecting such data. These methods include (1) using existing data to extrapolate an estimate of the use of some tax benefits; however, such data would be limited to the national level; (2) changing tax return forms to indicate the Empowerment Zone or Renewal Community in which each benefit is claimed; and (3) surveying businesses located in Empowerment Zones and Renewal Communities about tax benefit use. They also discussed the cost-effectiveness of each of the data collection options. The IRS Director of Research, Analysis, and Statistics, sent a letter to GAO that documented these discussions and indicated that the agencies were unable to agree on a cost effective method of collecting the data. GAO has been told that none of the agencies plan to seek the authority to collect the data at this time.

    Recommendation: To facilitate the administration, audit, and evaluation of the EZ/EC and RC programs, HUD, USDA, and IRS should collaborate to (1) identify the data needed to assess the use of the tax benefits and the various means of collecting such data; (2) determine the cost-effectiveness of collecting these data, including the potential impact on taxpayers and other program participants; (3) document the findings of their analysis; and, if necessary, (4) seek the authority to collect the data, if a cost- effective means is available.

    Agency Affected: Department of Agriculture

  2. Status: Closed - Not Implemented

    Comments: In response to GAO's recommendation, officials from HUD, USDA, and IRS met to identify data needed to assess the use of the tax benefits and identified three means of collecting such data. These methods include (1) using existing data to extrapolate an estimate of the use of some tax benefits; however, such data would be limited to the national level; (2) changing tax return forms to indicate the Empowerment Zone or Renewal Community in which each benefit is claimed; and (3) surveying businesses located in Empowerment Zones and Renewal Communities about tax benefit use. They also discussed the cost-effectiveness of each of the data collection options. The IRS Director of Research, Analysis, and Statistics, sent a letter to GAO that documented these discussions and indicated that the agencies were unable to agree on a cost effective method of collecting the data. GAO has been told that none of the agencies plan to seek the authority to collect the data at this time.

    Recommendation: To facilitate the administration, audit, and evaluation of the EZ/EC and RC programs, HUD, USDA, and IRS should collaborate to (1) identify the data needed to assess the use of the tax benefits and the various means of collecting such data; (2) determine the cost-effectiveness of collecting these data, including the potential impact on taxpayers and other program participants; (3) document the findings of their analysis; and, if necessary, (4) seek the authority to collect the data, if a cost- effective means is available.

    Agency Affected: Department of Housing and Urban Development

  3. Status: Closed - Not Implemented

    Comments: In response to GAO's recommendation, officials from HUD, USDA, and IRS met to identify data needed to assess the use of the tax benefits and identified three means of collecting such data. These methods include (1) using existing data to extrapolate an estimate of the use of some tax benefits; however, such data would be limited to the national level; (2) changing tax return forms to indicate the Empowerment Zone or Renewal Community in which each benefit is claimed; and (3) surveying businesses located in Empowerment Zones and Renewal Communities about tax benefit use. They also discussed the cost-effectiveness of each of the data collection options. The IRS Director of Research, Analysis, and Statistics, sent a letter to GAO that documented these discussions and indicated that the agencies were unable to agree on a cost effective method of collecting the data. GAO has been told that none of the agencies plan to seek the authority to collect the data at this time.

    Recommendation: To facilitate the administration, audit, and evaluation of the EZ/EC and RC programs, HUD, USDA, and IRS should collaborate to (1) identify the data needed to assess the use of the tax benefits and the various means of collecting such data; (2) determine the cost-effectiveness of collecting these data, including the potential impact on taxpayers and other program participants; (3) document the findings of their analysis; and, if necessary, (4) seek the authority to collect the data, if a cost- effective means is available.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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